Embracing Change

Microsoft is at some intermediate point in its journey from vendor of licensed software to ringmaster of a giant subscription economy. Like many companies in similar transitions, the going isn't always smooth, but if anyone can pull this off, it ought to be the guys in Redmond. I'm impressed with how much they get it -- not just at a high level, but throughout the organization.

What's the world coming to? Microsoft lost money in the software business last
quarter -- the first loss in a decades-long string of positive earnings from the world's
biggest software company. Sheesh!

Yes, there were
extenuating circumstances, but the loss signals the breadth
and depth of the impact that the tablet is having on the hardware market -- the iPad
tablet, to be precise, and its economy size, iOS-sharing little brother, the iPhone. For
a quick slide show on iPad's penetration and adoption check out this
presentation
from Business Insider.

Last time I asked if hardware was becoming sexy again and why. The answers
seem to be "Yes" and "Because tablets have reached a new price point that
opens
up more emerging global markets to computing."

Tablets and their near kin, smartphones, are defining a global computing
platform for the next decade and beyond, promising first-world information
access to many people formerly left in the dust.

The writing was already on the wall when analyst firms IDC and Gartner recently
documented a stall in the PC/laptop forward momentum. Lower PC sales
means fewer operating system sales and all that goes with it.

Microsoft's Mojo

To be sure, tens of
millions of units are still being sold this year, along with operating systems and
productivity software often bundled in. But growth has stalled as new customers
in emerging markets are voting to type on Gorilla Glass over keyboards.

Every paradigm goes through a predictable life cycle, and the computer operating
system dependent on hardware sales is another example, not an exception.
Microsoft, Intel and others invested heavily in thin, ultra-light laptop machines
as the next thing that would protect the franchise and compete with tablets, but
they were still too expensive and ultimately not cool enough.

If Microsoft expects
to get its OS mojo back, it will need to cajole its hardware partners into really
being competitive with tablets.

Right now, everything is going the way of the tablet, and Apple can almost do no
wrong. Even when a European judge made a finding
in favor of Samsung in a patent dispute with Apple recently, he declared the
Samsung gear
"not as cool" as Apple's and therefore not infringing on Apple
patents. That's just amazing.

Windows 8 comes out later this year, and Microsoft has introduced a tablet of
its own, the Surface. The game is far form over, but the latest brush with reality
suggests Microsoft might have been prescient in going "all in," as Steve Ballmer
said of the company's approach to cloud computing some time ago.

Microsoft
is at some intermediate point in its journey from vendor of licensed software to
ringmaster of a giant subscription economy. Like many companies in similar
transitions, the going isn't always smooth, but if anyone can pull this off, it ought
to be the guys in Redmond.

When I've spent time with the Redmond gang over the last couple of years I've
been impressed with how much they get it -- not just at a high level, but throughout
the organization. "All in," Azure, and retail stores suggest a company thinking its
way through the changes. And analytics and social networks suggest they really
get it. Maybe "all in" should be replaced by "we get it," or better, "we get you" -- but not
quite yet.

On a cautionary note, getting to the cloud or to tablets won't be enough; this
is a business model change that every company has to deal with, and Microsoft
has done more than many already. Now, Microsoft's partners have to pick up the
gauntlet and evangelize more than ever.

Innovation and Creative Destruction

On Wednesday, Zuora will release a Fireside Chat video discussion that I
am participating in. It will be all about the cloud and subscriptions, and I expect
an important theme will be the attention that subscription companies need to
pay not to selling but to service and ensuring customer happiness.

And, oh heck, while I am talking about myself, I might as well mention that my new book
is coming out around the same time: The Subscription Economy - How
Subscriptions Improve Business.

While the changes in the industry might be painful for some, they also represent
innovation and creative destruction, which is the hallmark of a vibrant economy.

The issue for us is not how to slow down change, but how to embrace and leverage
it. Once the election clears out, I think Q4 could be an important turning point
as winners and losers get back to the work of inventing the future and making
money.